Update to Notice of Interest Article
updated-June 23, 2015
I published this article on March 4, 2009. Investors across the country have wondered about the nuances of Notice of Interest and Memorandum of Interest or Contract.
I find it amazing that it’s still one the my most viewed articles on this site. 6 years later it has some great information in it. But I have to be honest. I no longer use this document. That’s why I changed the header image. I believe we’re at a crossroads of sort and we’re dangerously close to going off the rails in the real estate investing business.
When I published this in 2009, it was a different culture than today. Back then I LOVED using these documents. It actually gave me a thrill when a title company or attorney came crawling to me begging me to release the document from the title. Because what usually followed was a check in exchange for my release of the title cloud that i had recorded.
In 2009, the game for me was all about the profit. It was about winning and the score was kept by seeing how many dead presidents you could accumulate.
However, we’re in a completely different cultural environment. Social media has changed everything from how we eat, who we vote for, and it has been used to overthrow governments, and has served as a catalyst for monumental change in this country.
And now we find ourselves in the midst of a huge shift in how we now do business. Businesses that prosper today are those that build relationships with their clientele. In this the digital age, making money can no longer be seen as the priority. Doing good is what’s most important. Even if others are doing wrong by you. Now, to me, doing the right thing trumps making a buck.
Filing a document such as a Notice of Interest or a Memorandum of Contract doesn’t foster good relationships. The only intent of either of these documents is to turn the screws on a homeowner. It’s only purpose is to simply lock down a deal so that the homeowner can’t weasel out and get a better deal with someone else.
These days I don’t need such a document to serve that purpose. When we buy houses, I look to establish and foster an authentic relationship with the client homeowner.
If I haven’t built up enough of a rapport and relationship with a homeowner where they feel obligated to me, then I don’t need to be in that deal and I guess I didn’t do as good of a job as I should have in building a relationship.
If the homeowner can get a better deal than what I’ve offered, then so be it. If you truly care about your client’s best interests, then you should be happy they got a better deal. I’m not here to make a few Benjamins over the livelihood and needs of, what may be, an already distressed homeowner.
So while the info below may still be pertinent, I caution you in using it. This is 2015 and word of mouth is VERY…VERY…strong. A tweet here, a Facebook update there…a YouTube or Instagram video…you are literally a click away from having your entire business put at risk and seen as being a bottom-feeding predator by using this document.
Is it really worth it to you to use this?
The Notice of Interest vs. Memorandum of Interest Article
My buds down at the Broward Real Estate Investors Association send me a weekly newsletter and in this week’s installment, Dave Dinkel penned a real pertinent article that we wanted to share with you. Here it is.
NOI’s versus MOC’s
While this sounds like two local football teams’ “short names”, it is actually the “acronyms” or letter abbreviations for two of the most powerful documents in real state investing.
The “NOI” is a Notice of Interest or sometimes called a “Memorandum of Interest“. It is usually a one page document that stipulates that the person submitting the document for recording at the County Clerk’s Office has an “equitable interest” in the property. Most common is when an investor signs a purchase and sale contract (FAR/BAR) with a homeowner/seller and wants to show that he has an interest in the property in case someone else comes along and offers the homeowner a higher price.
This practice by investors of “up bidding” properties after they are under contract is getting more common in these markets but even happens in “regular” markets. BREIA has a so called “Wall of Shame” of investors who regularly make statements to homeowners like “Get your highest offer from those other guys and call me back, I’ll give you more money than any of them – I just need to see it in writing”. The ugly part of that statement is “in writing” because that usually means a contract has to be signed by the homeowner. This will be the same contract that he and you signed in good faith to seal your deal.
While I can’t blame the homeowner from wanting more money, what I have seen happen most often is the “black-hat investor”, who stole the deal, actually gets to the closing table and re-negotiates the price to below what you had originally offered. This is a total scam and there is at least one investor in the tri-county area that uses this tactic in almost every deal he does. How do I know, I have been on the other side of his offers and had to fight to keep my sellers.
So occasionally we have to fight for our closings and I have covered this in other “Minutes” about how to do this. The ironic part is that it is a criminal offense to “induce” someone to sign a contract when another contract is in place. The Attorney General’s Office will take these cases if you show proof and the seller cooperates – which is usually the case when the homeowner is threatened with a law suit for foreclosure.
So when we sign a contract with a seller, we almost always, record a Notice of Interest in the public record which is a lien against the property. I want to repeat this because the subtleties of this “lien” are very far reaching. This NOI now has to be “released” as a lien on the property before the title can be transferred unless there is a foreclosure action to extinguish it, or the lien holder (you) starts a foreclosure action yourself to take the property. If this sounds harsh, it is just a solution to a problem where one party to a contract won’t hold up his end of the agreed-to terms – just like a lender does to a homeowner.
The NOI does not need to be signed by the homeowner/seller so anyone can theoretically put a lien on anyone’s property. Just remember, there is a sign in the Clerk’s Office that says something to the effect that “If you enter a lien that is not valid it is a felony”, so think twice about what you are doing before you do it – don’t do it in anger or it could cost you a lot in attorney’s fees. Having said that, the courts and sometimes the recording clerk, treat the NOI like an unruly step child. They tolerate them probably for the fees, but they don’t like them much because of historical issues with the seller not knowing these liens have been filed. Even the FAR/BAR and FAR contracts specifically forbid filing a notice of interest for the contract the buyer and seller are signing. This can be immediately overcome by striking this clause or adding over-riding clause in your contract.
Now that you have filed a NOI in the public record, the next time the title to the property is transferred, the title agent will have to have a “Release of Lien” to write a title policy on the property or keep it as an “exception” in the policy. Since there is now another lien (NOI) against the property means that the title has been “clouded” and needs to be “cleared” for transfer. This is where you come in to release the lien and it usually happens when you least expect it – just before you were planning on closing yourself! Sometimes the homeowner will call when he gets a copy of it from the Clerk’s Office and he didn’t expect it – either way, the seller is trying to renege on the transaction. Sometimes it is for a valid reason, most often it is not.
You have a couple of choices when the NOI “hits the fan” so to say:
1.) Release the NOI using a Release of Lien document
2.) Hunker down and fight the seller to come to closing
3.) Get paid to release the lien
Your choice is personal and determined by the potential lost profit in the deal, the homeowner’s/seller’s REAL motive for not wanting to sell, how much you can get paid for a release of lien, and your disposition on that day. So in the final analysis, the choice is yours.
The next vision I want you to have is a mental picture of me working out in the gym and along comes an Olympic weightlifter. While I may be the handsome one, he has the ability to lift a car and me, well….. Anyway, the NOI would be me and the MOC is the Olympic weightlifter by comparison! So what’s the difference? The main, and only true difference, is that the MOC (Memorandum of Contract) is signed by the homeowner and the buyer. There can be few or no logical reasons that a homeowner can now say he didn’t know he was selling his property or whatever other silly excuse he might come up with. The law isn’t always logical, but in making a case in front of a jury or a judge, it helps to have all the evidence you can get beforehand. The courts love MOC’s, but don’t like NOI’s nearly as much.
In summary, if you want to protect yourself against “Deal Stealers”, use an MOC or at least a NOI on every deal. Much more importantly, get your Disclosure Documents signed to cover yourself against the “Anti-investor” Statutes to strengthen any deal where you get involved. These are not just for homeowners in foreclosure or contemplating foreclosure, they are for EVERY seller you come in contact with the exception of institutional sellers as in REO deals.
To your limitless success,